Black people account for around 12.4% of the U.S. population, so why do they only account for about 2.4% of business owners? There has long been a disparity between the business equity and success of white-owned businesses versus that of black-owned. This is an even more disturbing fact when you consider that this wealth gap is set to cost the United States economy up to $1.5 trillion by the year 2028.
As the United States works to create a business and social environment in which black-owned businesses gain equity, there are several important factors to consider in order to achieve real equity.
How often have enterprise organizations considered the difference in experience Black business owners have?
Have they looked at the internal and overall economic and operational innovation that can be leveraged by working with these suppliers?
By examining the experience of Black business owners in the United States and opening our eyes to the positive impact they can make, procurement teams will be better equipped to include these suppliers within their supply chains—meeting their own diversity goals and creating a more equitable space for black-owned businesses.
Equality versus equity
The first step in helping Black-owned businesses is understanding the difference between equality and equity. Although both are necessary in order to create a business space in which everyone is on an equal playing field, Diversio points out the main difference between the two:
Equality refers to giving all individuals fair treatment and equal rights to opportunities. Equity on the other hand refers to fairness and equality in outcomes and not just support and resources.
While equality is important, it does not take into account the specific needs of different groups—only the general desire to treat everyone the same way. By focusing on equity, the unique needs and challenges of diverse groups are factored into decision-making processes, resulting in a more inclusive marketplace for suppliers.
In the case of creating an equitable environment for Black-owned businesses, procurement professionals need to do more than just say they want to onboard suppliers that fall within this diversity category. They need to work to understand the challenges and build empathy that allows buyers to make intentional decisions that give Black-owned businesses more opportunities.
The difference in experience
Historically speaking, Black Americans have had more challenges establishing their own businesses. In fact, according to a recent article by Fortune, Black Americans account for only 4.8% of business equity, compared to that of 16.5% of White Americans.
Additionally, BIPOCs were shown to face greater challenges when trying to finance their businesses. NerdWallet reports these groups often face more scrutiny when applying for business loans, receive higher interest rates, and receive significantly less funding than non-diverse business owners. Further, over half of Black business owners use personal credit to get established.
Once established, Black-owned businesses tend to face more challenges staying afloat—especially apparent when the COVID-19 pandemic set in. As reported by CBS News, a large number of minority-owned businesses were rejected when applying for Paycheck Protection Program loans, despite many applying to multiple banks. Some businesses even struggled to have banks respond to their loan applications at all.
Ron Busby, President of the U.S. Black Chambers, commented on the gravity of the situation saying, “Many of our businesses were being turned down in the first and second round of funding. That caused application fatigue and frustration.”
Still, Black-owned businesses persevere, and there is great economic growth to be gained if Black-owned businesses are given more equitable opportunities.
Black-owned businesses increase economic goals
There is a lot of room for growth when it comes to enabling Black-owned businesses to be successful. While there are many reasons to create opportunities that offer these businesses more equity, let’s take a look at some of the incredible economic benefits of doing so.
In research done by Brookings, there are several impactful results that could drive economic expansion if Black businesses reached equality with that of non-Black businesses. If they matched that of the U.S. Black population, the number of Black-owned businesses would increase by more than 806,000. If revenue levels were increased to that of non-Black companies, Black-owned businesses would account for an additional $676.4 billion. If the average number of people employed by Black businesses equaled that of white-owned businesses, an additional 1.6 million jobs would be created.
All the data supports investing in Black-owned businesses, yet there is still a disparity in the opportunities these suppliers have within larger economies and commerce functions. That’s where procurement comes in. By investing in greater supplier diversity, procurement teams across North America can build a more equitable marketplace for Black-owned businesses.
How can procurement invest in more Black-owned businesses?
There are plenty of enterprise organizations investing in greater supplier diversity, specifically with Black-owned suppliers. For example, Netflix recently committed to spending $100 million with Black-led banks and plans to further increase this amount to assist in closing the racial wealth gap. Target is committed to spending $2 billion with Black-owned businesses by 2025.
As more corporations prioritize increasing spend with these groups, it’s important to begin thinking about how you can do the same within your organization.
Gain visibility into these businesses
Increased visibility is one of the best starting points for investing in Black-owned businesses. After all, procurement teams can’t work with suppliers they don’t know about. Search for these businesses in your community to diversify your next sourcing event.
Take it a step further and speak to the business owners to get a better understanding of their unique needs. Every business is different—some could use help building business credit while others could use greater insight into how to expand beyond their current operations.
Be intentional
It’s one thing to say you’re going to invest in Black-owned businesses, but it is another to carry out specific tasks that enable sustainable, year-round success. Small businesses have the power to drive real economic impact, so be sure you’re being transparent on your plans to provide them with resources to grow. Whether this is done through workshops, mentorships, sponsorships, or marketing efforts, ensure you’re being intentional about your efforts. From there, publicly communicate your efforts each year and report on the impact you’ve made.
Expand your networks
Procurement professionals have a tendency to source from their personal networks—you know someone who works at X company and offers the product your team needs, so you invite them to a sourcing event. While this isn’t necessarily a bad thing, if your network doesn’t currently include many Black business owners, you may not be including as many of these suppliers in your sourcing events as you could be. Without a more diverse network, you may, unconsciously or otherwise, find it foreign to work with more Black business owners.
In a presentation to TealBook employees, Lekan Olawoye, Founder of Black Professionals in Tech Network Inc. explains this concept, saying:
I will refer to you, who is in my network to hire. So if you are just on a ‘solve a hiring problem’, but your network is not diverse, you cannot actually solve the hiring problem. Your network does not have enough data points in it to talk to [Black professionals] about [Black professionals]. You need more people like me in your network to be able to engage me [and] make decisions about me.
Expand your personal and professional network to include more Black professionals. You can then leverage those relationships to include more Black-owned suppliers in your discovery process creating greater equity with each sourcing event.
Share suppliers with your networks
As you begin building relationships with Black-owned suppliers and seeing the benefits they bring to your company, advocate for them with other enterprise firms.
Do you have a supplier who delivers an exceptional product? Send their information along to your peers or invite them to networking events to introduce them to other buyers in your industry. By introducing more Black-owned suppliers to your network, you are directly helping to decrease the equity gap.
Assist with certification
One of the biggest challenges Black-owned businesses face in expanding their revenue potential is earning third-party certification. Without it, they can often be left out of diverse sourcing events that only look to include suppliers with official certification. However, many small businesses don’t have the time, capacity, or money to go through the process of applying for a minority-owned business or small business certification each year.
Take a look at the Black-owned suppliers you’re working with and take note of how many don’t have certification, despite clear qualifications. Additionally, consider Black-owned suppliers who have self-certified as an MBE or SBE. Self-certification allows suppliers to qualify for more potential business without the hassle of certification, and buyers are made aware of new suppliers that meet their needs and were previously not included in sourcing events.
Consider offering to finance their certification process or assist in gathering the documentation necessary for applying. Not only will you open them up to additional potential business, but once officially certified, those suppliers can further count toward your organization’s diverse spend.
Investing in Black-owned businesses
As we work to create a more equitable business environment for Black-owned businesses, it’s vital to listen to the voices of Black business owners themselves. After all, they understand the challenges and how best to create positive change.
We encourage you to visit the resources below to learn more about how you can empower Black-owned businesses.
Visit The U.S. Black Chambers, Inc.
Read more on Building supportive ecosystems for Black-owned US businesses
Expand your professional network by joining Obsidi
